CATA News

By Judy Mason, CPA, CVA, MichaelSilver
 
President Trump signed into law the CARES Act — worth more than $2.2 trillion — on March 27 to help stimulate the economy reeling from the effects of the coronavirus.

 

What are the aspects of the CARES Act that can help my business (and my employees)?
Loans and payroll credits along with unemployment benefits, including the Paycheck Protection Program loans (PPP), emergency Economic Injury Disaster Loans (EIDL), refundable payroll tax credits, deferment for some payroll tax payments, and enhanced unemployment benefits.

 

Which loan is best for my business, an EIDL or PPP loan?
EIDLs provide a $10,000 cash advance within three days of applying for the loan. The $10,000 cash advance does not need to be repaid if the loan is subsequently denied. EIDLs are capped at $2 million. PPP loans are capped at $10 million and provide an opportunity for a portion of the loans to be forgiven. The forgiveness or cancellation of the loans would not be treated as income for tax purposes. If cash flow is not an immediate concern, the PPP loan may be the better option.

 

Should I use my other sources of business funding before applying for these loans?
A key factor to consider when deciding whether or not to apply for these loans is the potential forgiveness factor of the PPP loan. However, applying for a line of credit to help in the short run doesn’t preclude you from applying for a PPP loan.

 

Is my business eligible for the PPP loans? What are the affiliation rules?
Businesses with 500 or fewer employees are eligible. To determine the 500 limit, affiliation does not apply to a business operating a franchise that is assigned a franchise identifier code by the SBA. OEM brands with franchise identifier codes including Chrysler, Dodge, Jeep, Ram; Kia; Ford, Lincoln; Mazda; Mitsubishi; Subaru; and Volvo. Many other OEM’s have applied to the SBA for a franchise identifier code. Once obtained, the franchisee may also be exempt from the affiliation rules. The NADA is encouraging the SBA to expedite this process.

 

How much of a loan can I receive for each one of my dealerships?
The maximum loan amount is limited to 2.5 times the average monthly payroll costs for the last 12 months, with compensation of each employee limited to $100,000. Payroll costs include salary, wages and commissions, tips, paid leave, healthcare, and retirement payments. The payroll costs are reduced for any qualified sick leave or family leave wages for which a credit was allowed under the Families First Coronavirus Response Act. The maximum loan amount is $10 million.

 

What are the allowable uses of the loan proceeds?
• Salaries and commissions
• Costs related to the continuation of group health insurance and other benefits
• Mortgage interest payments
• Rent subject to a lease
• Utilities
• Interest on debt obligations incurred before the covered period

 

How much of the loan will be forgiven?
Total payroll costs, rent, utilities, and mortgage interest paid during the eight-week covered period. This amount is reduced if the number of employees declines during the covered period as compared to the number of employees for the period Feb. 15-June 30, 2019 or Jan. 1-Feb. 29, 2020, whichever is lower. Reductions in employment or wages that occur during the period beginning Feb. 15, 2020 and ending 30 days after enactment of the CARES Act, (as compared to Feb. 15, 2020) will not reduce the amount of loan forgiveness IF the borrower eliminates the reduction in employees or reduction in wages by June 30, 2020.

 

What if I continue to reduce my workforce? Does that reduce how much will be forgiven?
Yes, the amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.

 

What happens after the forgiveness period?
Any loan amount not forgiven at the end of one year is carried forward as a loan with a maximum term of two years. Principal and interest will be deferred for a total of six months to one year after disbursement of the loan.

 

What are the loan terms and interest rates?
The maximum term is two years and maximum interest rate is 0.5% as of April 1, 2020.

 

Will I be required to personally guarantee the loan?
No personal guarantee or collateral is required. A "good faith certification" is required to verify the forgiveness portion of the loan.

 

Who should I contact if I would like to apply for a loan?
Most of the banks will be handling the application and processing of the PPP loans through the SBA. EIDLs can be applied for directly from the SBA website.

 

How should I account for these loans and track the expenses?
Document the amount eligible for forgiveness. Support includes the following:
• Verification of the number of employees and payroll paid using payroll tax returns
• Documentation of other eligible costs such as group health care benefits, including insurance premiums, payments of interest on mortgage loans, rent, utilities, and interest on debt incurred before the covered period
• Certification by a representative of the business

Consider a separate bank account to track the appropriate use of funds for specific costs during a specific period.

Should I consider taking these loans or should I use the payroll tax credits instead?
There is a payroll tax credit available if you choose not to apply for a loan. The details are provided below. There also is an option to defer the payment of a portion of the employer payroll taxes.

• Employee retention credit in the form of a refundable payroll tax credit:
  o Eligible employers include any business that is required to partially or fully suspend operations due to COVID-19
  o Businesses whose gross receipts are 50% or less this quarter compared to the same quarter in the previous year
  o The credit is computed at 50% of wages up to $10,000 of wages per employee for eligible employers ($5,000 credit).
  o Wages of employees who are furloughed or face reduced hours are eligible for the credit
• Delayed payment of certain employer payroll taxes (6.2% OASDI) through the end of 2020
  o The deferred tax liability would be paid in two installments – half by Dec. 31, 2021 and the remaining half by Dec. 31, 2022

 

Can I take the credits and payroll tax deferral if I have a PPP loan?
No. If you receive PPP loan proceeds, you are not eligible for the credit and tax deferral payments. More than likely, the PPP loan is a better option unless your workforce is significantly decreased during the next several months.

 

What are my options if I do not qualify for the PPP loan?
Small businesses with less than 500 employees may request an advance of $10,000 through an EIDL to be used for providing sick leave, maintaining payroll to retain employees, meeting increased material costs, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.

 

If I have to lay off employees, what kind of unemployment benefits would they receive?
• Recipients are eligible for an additional $600 per week payment through the end of July in addition to their state unemployment benefits.
• The unemployment benefits created under the CARES Act terminate at the end of 2020.

 

What is the Families First Coronavirus Response Act?
Congress also passed the Families First Coronavirus Response Act (FFCRA). This act went into effect April 1, 2020 and mandates employers with less than 500 employees to provide paid sick pay and family leave for employees who are affected by the virus. The NADA issued a FAQ document that can answer many questions about how the various credits work under this Act.

If I have any questions about the CARES Act and FFCRA, who should I contact?
You should discuss all of these options with your professional advisors including your banker, your employment attorney, and your CPA. We at MichaelSilver also are available to answer any additional questions that you might have.

 

The federal government’s Paycheck Protection Program on April 3 began accepting applications for loans to small businesses and sole proprietorships affected by the coronavirus pandemic.
 
The application can be found on the U.S. Treasury’s website, along with details for borrowers and for lenders. Treasury representatives urged those in need of funding to apply quickly, noting that the program has a cap and demand is likely to be high.
 
The $349 billion program was enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed by President Trump on March 27. Under the program, small businesses with 500 or fewer employees including not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors are eligible for loans to pay up to eight weeks of payroll costs including benefits as well as other costs. Businesses with more than 500 employees are eligible in certain industries, Treasury said.
 
Loan forgiveness is based on the employer’s maintaining or quickly rehiring employees and maintaining salary levels, Treasury said in its overview documents. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.
 
PPP funds also can be used to pay interest on mortgages, rent, and utilities. Treasury noted that due to likely high demand for the program, at least 75% of the forgiven loan amount must have been used for payroll.
 
Loan payments will be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

 

An employer who receives a loan under the PPP is not eligible to also claim an employee retention credit under the CARES Act. The employee retention credit gives eligible employers whose business operations are fully or partially suspended due to the COVID-19 pandemic a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.

 

 The Chicago Automobile Trade Association on March 30 surveyed its dealer members to get a sense of their operations during this pandemic, so that the CATA can help them make the most informed decisions for their businesses.
 
The seven-question survey sought information about a dealership’s business hours, whether sales departments were operating, and how service volume compared to January 2020. About 100 survey respondents representing more than 120 area new-car dealerships said the following:

1. Please report the current state of your business
• Completely shut down: 9.4%
• Maintaining service operations and sales by appointment: 89.4%
• Maintaining service operations only; sales closed: 1.1%

 

2. Please provide your active employee headcount (approximate) in these areas of your store over the past 60 days.
• Service staffing down 44% (47% if closed dealerships are counted)
• Sales staffing down 45% (49% if closed dealerships are counted)

 

3. Are your technicians unionized? (represented by Mechanics’ Local 701)
• Yes: 48%
• No: 52%

 

4. Are your parts employees and porters unionized? (represented by Teamsters Local 731)
• Yes: 29%
• No: 71%

 

5. Sales Volume today as compared to 1/31/20
• 10% of volume: 24% of respondents
• 25% of volume: 24% of respondents
• 50% of volume: 39% of respondents
• 75% of volume: 11% of respondents
• 100% of volume: 2% of respondents

 

6. Service volume today compared to 1/31/20
• 10% of volume: 11% of respondents
• 25% of volume: 22% of respondents
• 50% of volume: 40% of respondents
• 75% of volume: 23% of respondents
• 100% of volume: 4% of respondents

 

7. Does your dealership intend to pursue a business loan (and potential loan forgiveness) under the CARES Act?
• Yes: 90%
• No: 10%

 

Hawk Volkswagen of Joliet, Bill Jacobs Volkswagen (Naperville), Jennings Volkswagen (Glenview), and Muller Volkswagen (Highland Park) were named members of Volkswagen’s 2019 Wolfsburg Crest Club, for extraordinary sales and customer experience efforts.

Here’s some encouraging news amid all of the economic turmoil caused by COVID-19. The auto segment of the S&P/Experian Consumer Credit Default Indices showed a significant decline in February.
 
Dow Jones Indices and Experian on March 17 released their data through February and reported that auto defaults dropped 10 basis points on a sequential basis to land at 0.89%. That’s the lowest reading since last July when it also stood at 0.89% after two straight months when analysts pegged the metric at 0.87%.
 
For some perspective in light of the coronavirus impact, data from Dow Jones Indices and Experian indicated the reading in January 2010 was 2.57% when the industry still was recovering from the Great Recession.
 
Returning to the February data, Dow Jones Indices and Experian indicate the composite rate — a comprehensive measure of changes in consumer credit defaults — remained unchanged at 1.02%.
 
Analysts also found the first mortgage default rate also stayed unchanged in February, holding at 0.84%. Going counter to the auto sector, Dow Jones Indices and Experian noticed the bank card default rate increased 13 basis points to 3.41%.
 
Among the five major metropolitan areas analysts track for the monthly update, analysts pointed out that four cities posted lower default rates in February compared to the previous month.
 
Miami generated the largest decrease, dropping 11 basis points to 1.66%. New York fell 7 basis points to 1.00%, while Los Angeles dropped 6 basis points to 0.80%. Dallas dipped 5 basis points to settle at 1.02%.
 
Chicago was the only major metropolitan area that increased in February, rising 4 basis points to 1.21%.
 
Jointly developed by S&P Indices and Experian, analysts noted the S&P/Experian Consumer Credit Default Indices are published monthly with the intent to accurately track the default experience of consumer balances in four key loan categories: auto, bankcard, first mortgage lien and second mortgage lien.

 

The indices are calculated based on data extracted from Experian’s consumer credit database. This database is populated with individual consumer loan and payment data submitted by lenders to Experian every month.

 

Experian’s base of data contributors includes leading banks and mortgage companies and covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.

 

The coronavirus that is disrupting personal and professional affairs across the globe can count another victim: the Illinois General Assembly.
 
No hearings are scheduled in either the state Senate or House of Representatives through May 31, when the bodies ordinarily adjourn their spring sessions.
 
Senate Bill 2481 has enjoyed unanimous support in two roll-call votes. A third affirmative vote would send the bill to the state House. Gov. JB Pritzker has voiced his backing.
 
The cap took effect Jan. 1 following moves last spring to find funding for the $45 billion state capital infrastructure plan sought by Pritzker. Under the bill, infrastructure projects would instead be funded, in part, by increasing the sales tax charged in private vehicle sales, based on vehicle age and selling price.

 

In other news from Springfield, under proposed state legislation, drivers could obtain a registration permit from the Illinois Secretary of State that is valid for 90 days instead of the current term of 30 days. The longer-lasting permit would carry a $13 fee.
 
But the future of Senate Bill 3197 is in question, with state lawmakers recessed during the current pandemic outbreak. The General Assembly’s 2020 schedule called for bills becoming law to pass out of committee by March 27. An adjusted schedule has not been announced.

 

The coronavirus that is disrupting personal and professional affairs across the globe can count another victim: the Illinois General Assembly.
 
No hearings are scheduled in either the state Senate or House of Representatives through May 31, when the bodies ordinarily adjourn their spring sessions.
 
Senate Bill 2481 has enjoyed unanimous support in two roll-call votes. A third affirmative vote would send the bill to the state House. Gov. JB Pritzker has voiced his backing.
 
The cap took effect Jan. 1 following moves last spring to find funding for the $45 billion state capital infrastructure plan sought by Pritzker. Under the bill, infrastructure projects would instead be funded, in part, by increasing the sales tax charged in private vehicle sales, based on vehicle age and selling price.

 

In other news from Springfield, under proposed state legislation, drivers could obtain a registration permit from the Illinois Secretary of State that is valid for 90 days instead of the current term of 30 days. The longer-lasting permit would carry a $13 fee.
 
But the future of Senate Bill 3197 is in doubt, with state lawmakers recessed during the current pandemic outbreak. According to the General Assembly’s 2020 schedule, bills in hope of becoming law must pass out of committee by March 27. SB 3197 currently is before the Senate Transportation Committee.

 

Everyone should be concerned about contracting the new coronavirus — if not for oneself, then to protect others who are at risk of becoming severely ill. As with the flu, the virus is more dangerous for people who are older than 60, people who have a weakened immune system, and people with an underlying condition such as diabetes, asthma or another chronic illness.
 
The flu and the coronavirus can cause similar symptoms — a whole-body malaise, with a fever, a dry cough and a noticeable shortness of breath — but there are differences. Because the symptoms are so similar, doctors will sometimes rule out the flu first.
 
Spring allergy season tends to trigger many of the same symptoms in many people, adding another diagnostic wrinkle.

With the spread of the coronavirus comes another ailment: anxiety about every single symptom. Is an itchy nose the result of trying not to touch one’s face or is it the onset of the flu? Or is it, just maybe, the coronavirus?
 
As spring nears, allergies may be triggering symptoms that can make it difficult to determine what your body is trying to fight off. Dr. Amesh Adalja, an infectious disease specialist at the Johns Hopkins Center for Health Security, helps explain the subtle differences between signs of allergies or infection with the flu or the coronavirus.
 
First, consider the time of year. Allergies and influenza tend to be seasonal. If you have a runny nose in the spring and this happens every year, allergies are the likeliest culprit. If it’s winter and flu is raging in your community, then that’s the probable explanation. The flu is far more widespread than the coronavirus.
 
But flulike symptoms in warming weather — in a place with documented coronavirus transmission? Maybe it’s not the flu.

Influenza dies back in the summer, but scientists have yet to see evidence that the coronavirus will go away as temperatures rise. Coronavirus infections have been spreading in equatorial climates like Singapore’s and in the Southern Hemisphere, now in the middle of summer.

 

Consider, too, where the symptoms first started appearing. "It’s usually your nose and eyes where you develop symptoms of seasonal allergies," Dr. Adalja said.

 

The seasonal flu, on the other hand, is more likely to affect your whole body, as is the case for many other respiratory viruses — including the coronavirus. So if you experience fevers, headaches or muscle aches, consider flu or coronavirus.

 

"There’s a feeling of overall malaise that is associated with viral infections," Dr. Adalja said. Except for seasonality, it can be hard to tell the two apart.

 

"Unfortunately, there’s no reliable way to distinguish between early symptoms of the flu and coronavirus," Dr. Adalja said. "The only way to distinguish the two clinically is with a diagnostic test."

 

According to reports from nearly 56,000 laboratory-confirmed cases in China, people infected with the coronavirus develop symptoms like a dry cough, shortness of breath and a sore throat, in addition to fever and aches.

 

About 5 percent of patients may also experience nausea or vomiting, while roughly 4 percent develop diarrhea. Researchers are not sure why some people develop gastrointestinal symptoms with coronavirus infections.

 

"But that’s not something you usually see with influenza in adults," Dr. Adalja said.

 

Severe coronavirus infections can result in lung lesions and pneumonia. But the vast majority of those infected get only mild cases that often resemble the flu.

 

Your personal history can give doctors clues to what’s going on. If you traveled to an area with large clusters of coronavirus cases, or were in contact with someone who later tested positive for the virus, you may have caught it, too.

 

Doctors and health care workers have to work with these possibilities because tests are still available only in limited quantities in the United States, Dr. Adalja said.

 

How bad is it?

Pay close attention to whether your symptoms worsen over time. Discomfort due to allergy remains consistent until you treat it or the allergen goes away. Symptoms of the flu tend to resolve in about a week.

 

The new coronavirus, on the other hand, seems to cause more severe symptoms than the average seasonal flu and seems to have a higher fatality rate, although the numbers are a bit uncertain.

 

If you are elderly or have other health conditions, such as heart disease, Type 2 diabetes or immunodeficiency, you are more vulnerable to viral infections and are more likely to develop severe disease if infected with the coronavirus.

Early estimates from China show that the average death rate among coronavirus patients is about 2 percent, but that figure rises to 8 percent in people 70 years or older, and about 15 percent in people 80 years or older.

But nobody is certain how many cases are very mild or asymptomatic.

 

What to expect
The general advice for people who get sick with the flu or coronavirus is very similar: Rest and drink plenty of fluids.

Mild cases of the flu resolve by themselves within a few days. Although coronavirus infections tend to last a little longer, most people with mild cases get better in about two weeks, Dr. Adalja said.

 

Severe cases may take three to six weeks to resolve. Doctors can only give supportive care, providing patients with intravenous fluids, medicines to keep the fever down or oxygen to help with breathing.

 

There are no approved treatments for coronavirus infections, although a few clinical trials are underway that test antiviral drugs such as remdesivir.

 

It’s up to you to take precautions to prevent a coronavirus infection, and to take stock of your medical and travel history. But you don’t need to go to the doctor for every sniffle or scratchy throat.

 

"You should be going to the doctor for something that would trigger concern, even before you had heard of the coronavirus," Dr. Adalja said.

 

"So if you’re somebody that’s elderly or somebody that has another medical condition, if you develop shortness of breath, if you develop extreme fatigue, those are real indicators to call your physician and go to the hospital."

 

President Donald Trump on March 18 signed into law a coronavirus relief package that includes provisions for free testing for COVID-19 and paid emergency leave.

 

The law provides many workers at businesses with fewer than 500 employees with up to two weeks of paid sick leave if they are being tested or treated for coronavirus or have been diagnosed with it. Also eligible are those who have been told by a doctor or government official to stay home because of exposure or symptoms.

 

Businesses will be reimbursed for the full amount within three months, in the form of a payroll tax credit. The reimbursement will also cover the employer’s contribution to health insurance premiums during the leave. It’s fully refundable, which means that if the amount that employers pay workers who take leave is larger than what they owe in taxes, the government will send them a check for the remainder.

 

Under the law, those payments would be capped at $511 a day, roughly what someone paid $133,000 earns annually. The original measure called for workers to receive their full pay but limited federal reimbursement to employers to that amount.

 

Workers with family members affected by coronavirus and those whose children’s schools have closed still would receive up to two-thirds of their pay, though that benefit now would be limited to $200 a day.

 

The Senate had earlier on March 18 approved the House-originated bill. The move allowed the upper chamber to devote its full attention to passing the next relief package in response to the coronavirus crisis.

 

Senate Majority Leader Mitch McConnell and other Senate Republicans had been critical of the House-passed legislation, but they emphasized that it is urgent to get relief to the American people amid the coronavirus crisis.

 

McConnell reiterated March 18 that he would not adjourn the Senate until it passed what lawmakers are describing as a "phase three" economic stimulus package in response to the coronavirus outbreak.

 

After an initial vote the previous week, the House approved a set of changes to the legislation on March 16, clearing the path for the Senate to take it up.

 

The House legislation was negotiated between House Speaker Nancy Pelosi and the Trump administration and the President expressed support for it.

 

To aid in social distancing, McConnell announced ahead of the final vote that senators would take precautions during the vote.

 

"What we’ll do is have a 30-minute roll call vote. We want to avoid congregating here in the well," he said. "I would encourage our colleagues to come in and vote and depart the chamber so we don’t have gaggles of conversation here on the floor. That’s particularly important for our staff here and the front of the chamber, so I would encourage everyone to take full advantage of a full 30-minute roll call vote. Come in and vote, and leave."

 

He asked members to be aware of "social distancing" as they went to the chamber and departed it and said, "With that, I think we will be able to get through the voting that will occur without violating any of the safety precautions that have been recommended to us by the Capitol Physician and others."

 

In a March 17 letter to President Donald Trump, the leaders of the National Automobile Dealers Association and the Alliance for Automotive Innovation urged him, when considering any executive orders in response to the COVID-19 pandemic, to classify dealerships as "essential" businesses exempt from forced closures.
 
"Given the importance of safe transportation in addressing the coronavirus outbreak, we have an obligation to ensure that motor vehicles remain safe and are properly maintained," NADA President Peter Welch and AAI President John Bozzella wrote.
 
Illinois Gov. JB Pritzker has been similarly approached, but a federal dictate would ensure uniform rules for dealerships across the U.S.
 
A significant number of states and cities have taken emergency action this month to force the closure of businesses deemed "nonessential," such as movie theatres, shopping malls and museums. By contrast, essential businesses, including healthcare facilities, pharmacies and grocery stories, are able to remain operational.
 
"Motor vehicles, both new and old," Welch and Bozzella wrote, "are critical to ensure that the public can get food and other necessities of life, as well as to continue to interact with one another in a manner consistent with public health officials’ recommendations.
 
"To that end, it is vital that vehicle repair, maintenance and sales facilities be considered essential operations when federal, state and local officials impose certain requirements due to the coronavirus outbreak."